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As Portugal struggles with debt and a budget deficit approximating 9% of gross domestic product, the country managed to raise $1.2bn via an exchangeable bond offering for Parpublica, the Portuguese state holding company.

The deal, while modest in size, generated league table credit for bookrunners BNP Paribas, Barclays Capital and Caixa Geral de Depositos and put the banks in pole position for further work with the issuer.

Alain Dib, global head of equity-linked and the restructuring advisory group at BNP Paribas, said: “The deal wasn’t what you would call a slam dunk, but we are pleased to have completed it in a difficult environment.”

On September 23, Parpublica announced it would raise $1.2bn in euro-denominated exchangeable bonds as part of its privatisation programme. The bond will transfer into about 7% of the shares in Galp Energia, a Portuguese oil and gas company which has exposure to Brazilian developments.

The exchangeable bond, which has a coupon of 5.25%, is the first issued by a sovereign since late last year, when Hungary’s national asset manager MNV issued a $1.2bn bond convertible into equity in drug maker Richter in September.

The deal was challenging for a number of reasons. While Parpublica is 100% owned by the Portuguese government, it is non-guaranteed, making the bond difficult to hedge.

One convertibles fund manager said: “On exchangeable bonds, investors like to see things which are hedgeable. Parpublica does not have credit default swaps, and if investors were to buy Portuguese CDS, it would not act as a perfect hedge as there is no explicit guarantee.”

Further, the seven-year bonds were not exchangeable for two and a half years, lengthening the sovereign risk, and the underlying stock was not pledged, meaning if the issuer were to fail, investors would have no right to the stock.